Author Topic: Sequoia Fund Investor Day Transcript  (Read 22558 times)

stahleyp

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Re: Sequoia Fund Investor Day Transcript
« Reply #70 on: January 26, 2018, 08:19:35 AM »
Does anyone know what Sequoia's returns would have been without berkshire? I'm assuming it has almost always been held (but not certain on that). If you do the annualized 20% with a 20% allocation, there goes the outperformance against the S&P 500.

Interesting question.. I would like to know if someone's done the math here as well..

The total out-performance vs S&P since 1970 is 2.65% so if you backed out the 21% annual from BRK, did the rest of the portfolio really add value?
+1
If you were one of the Buffett partners that rolled into Sequoia in 1970,  what did you learn? 2% outperformance over 50 years is good but if Sequoia was carried by Berkshire for all those years?

But I give them credit to have the fortitude to hold a major position in Berkshire for such a long period. Other managers could've done the same but they didn't.

Others managers also didn't have the friendship or capital gain taxes to pay. ;)
Paul


rb

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Re: Sequoia Fund Investor Day Transcript
« Reply #71 on: January 26, 2018, 08:20:40 AM »
But I give them credit to have the fortitude to hold a major position in Berkshire for such a long period. Other managers could've done the same but they didn't.
+1. So what if their outperformance mostly came from holding Berkshire? Others had the chance to hold it and they didn't. Berkshire's own outperformance also comes from a small number of sources. Also returns of 2% over S&P is nothing to sneeze at.

stahleyp

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Re: Sequoia Fund Investor Day Transcript
« Reply #72 on: January 26, 2018, 09:12:08 AM »
Is their holding of berkshire due to skill or the fact that Ruane went to school with Buffett? I'm sure there was a sense of loyalty there. If all of your outperformance (before taxes) is due to one holding, how does one determine if it were skill or luck (especially given the luck of the classroom)? Furthermore, If I had huge capital gains, it's hard to sell - even if you think it's fairly valued or slightly overvalued.
« Last Edit: January 26, 2018, 05:16:21 PM by stahleyp »
Paul

Brett

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Re: Sequoia Fund Investor Day Transcript
« Reply #73 on: January 26, 2018, 01:27:51 PM »
In their 4Q 2016 letter, Sequoia pitched 10-year performance excluding cash and Valeant in the second paragraph of their letter as evidence of their ability to pick stocks.

If they're going to use that horseshit logic, it should be fair to use it against them by excluding Berkshire on the upside.

longinvestor

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Re: Sequoia Fund Investor Day Transcript
« Reply #74 on: January 27, 2018, 08:45:25 AM »
So, in the rarified field of managers who have managed to best the index over 50 years, we see that Ruane did it by riding on Berkshire's 10% out performance; Good that he held on for all these years. But who else has beaten the index over 30, 40 or 50 years? A few others Davis, Gardner and lately Meacham have held significant %ages in Berkshire. It is amazing that one man appears to have carried everyone else. And how about all those who have not beaten the index? Well, Johnnie, that's your problem, not theirs.


NoCalledStrikes

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Re: Sequoia Fund Investor Day Transcript
« Reply #75 on: January 27, 2018, 08:03:42 PM »
"We also trimmed our investments in Berkshire Hathaway, Mastercard, O’Reilly, Waters and TJX. Almost all of these sales were driven by opportunities we saw to redeploy capital into either companies with better growth prospects and similar valuations or companies with similar growth prospects and more attractive valuations. The exceptions to this rule were Berkshire and Mastercard, where we felt compelled to reduce large position sizes to better reflect our assessment of future potential"

Not exactly the greatest timing... Let's say they sold BRK.A in mid Q4 at $280K/share, heck it still wasn't over $298K at year end.  Today its at $325.  Perhaps they should have assessed the assessment of BRK's future value of cashflows with a reduced tax rate, no?

Writing this caused me to lookup Mastercard, O’Reilly, Waters and TJX as well.  All are up significantly. Given the low cost basis' on what they sold, there is no way they picked better than they sold. They've locked in another year of under-performance with those sells.

In fairness, I don't think owning mature 500B market cap is the way to beat the S&P over the next 20 years, so I don't disagree with trimming, just the act of doing so in the face of a tax cut that most benefits mature 500B market cap companies.

John Hjorth

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Re: Sequoia Fund Investor Day Transcript
« Reply #76 on: January 28, 2018, 07:12:58 AM »
... Not exactly the greatest timing... Let's say they sold BRK.A in mid Q4 at $280K/share, heck it still wasn't over $298K at year end.  Today its at $325.  Perhaps they should have assessed the assessment of BRK's future value of cashflows with a reduced tax rate, no?

Writing this caused me to lookup Mastercard, O’Reilly, Waters and TJX as well.  All are up significantly. Given the low cost basis' on what they sold, there is no way they picked better than they sold. They've locked in another year of under-performance with those sells. ...

NoCalledStrikes,

As always, it's easy to see in the polished & clear rear mirror. [ : -) ]

There is much randomness, luck & unluck related to rolling between positions in the short term. My only addition here is, that rolling out of Berkshire and into something else most likely adds risk to the total portfolio, so the judgement of potential return on what one is rolling into matters much while doing that. [Because Berkshire has lot of built-in diversification.]

- - - o 0 o - - -

Anecdotal:

In the beginning of November 2017 my oldest brother decided to join "the gang" here. He's been a DIY stock investor since 2011. We have talked on/off about stocks since then. He has done well for himself stand alone. After talking with him in detail in April 2017 and seeing his actually portfolio etc. at that time, however I had three comments to him:

1. His total cash position is much too large, based on his life expectancy of about 20 years. [Time deposits, with negative real return after tax].
2. His NVO position is too large. That he won't reduce because of taxes, ... OK.
3. In general, his otherwise reasonable diversified portfolio is a bit too GARPy. Mostly some Danish Blue Chips with relatively high P/Es.

I suggested to do something about all three points by buying Berkshire - a ton - to him. I suggested some sort of average in, to get it roughly right. His reaction: "No, just buy it. You say the entry point right now is not totally silly, and it's long term, right?"

So he established a trading power of attorney to me, and moved a material part of his cash into his brokerage account, and filled up unused limit for the year in a tax deferred account.

I got some BRK.B for him at 182.80 on November 27 in his tax deferred account, and the rest - a lot - the day after - actually the exact day that Berkshire started to take off - at 186.00 in his taxable account.

Think about lead times in the Danish mail on the processing of physical power of attorney, circumstances around our communication, my brothers decision making patterns etc.

It was just a lucky punch, based on several elements of randomness, that got him out of the start block in a good way with Berkshire.

- - - o 0 o - - -

I personally considered the probability of an adopted US tax reform before Christmas uncertain with a bias to unlikely at that particular time.
« Last Edit: January 28, 2018, 08:29:41 AM by John Hjorth »
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longinvestor

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Re: Sequoia Fund Investor Day Transcript
« Reply #77 on: January 28, 2018, 09:53:28 AM »
... Not exactly the greatest timing... Let's say they sold BRK.A in mid Q4 at $280K/share, heck it still wasn't over $298K at year end.  Today its at $325.  Perhaps they should have assessed the assessment of BRK's future value of cashflows with a reduced tax rate, no?

Writing this caused me to lookup Mastercard, O’Reilly, Waters and TJX as well.  All are up significantly. Given the low cost basis' on what they sold, there is no way they picked better than they sold. They've locked in another year of under-performance with those sells. ...

NoCalledStrikes,

As always, it's easy to see in the polished & clear rear mirror. [ : -) ]

My only addition here is, that rolling out of Berkshire and into something else most likely adds risk to the total portfolio, so the judgement of potential return on what one is rolling into matters much while doing that. [Because Berkshire has lot of built-in diversification.]


I suggested to do something about all three points by buying Berkshire - a ton - to him. I suggested some sort of average in, to get it roughly right. His reaction: "No, just buy it. You say the entry point right now is not totally silly, and it's long term, right?"

I got some BRK.B for him at 182.80 on November 27 in his tax deferred account, and the rest - a lot - the day after - actually the exact day that Berkshire started to take off - at 186.00 in his taxable account.

It was just a lucky punch, based on several elements of randomness, that got him out of the start block in a good way with Berkshire.


Kudos to you for "timing" Berkshire for your brother. Surely he's happy but hopefully he is "long term". There is a different kind of happiness that the long term shareholder feels but something words cannot express. And my long term started 15 years ago. I met a couple at the Berkshire meeting whose long term started in 1978.

Now, let me address the urban myth going around right now; that the tax reform and the resulting benefit to Berkshire is the reason for the recent swelling of the market price. Sure. After all, the market is a voting machine and the math on that is easy. 20% more profits inuring to the shareholders and $37B of one time estimated BV gains ain't shabby at all.

Let's get to the weighing machine. I've been calling out (for more than a year) that the IV was well north of what the stock is selling for, now. That 1.2x BV threshold has messed with rationality of lot of folks. I've consistently been in the school that at 1.2x, it was a 70 or 60 or 50 or...xxxty cent dollar. How much of a bargain is a matter of time. Buffett uses "instantly and materially" when he talks about the buyback benefiting remaining shareholders. The 1.2x is a vaguely correct estimate of a ridiculous discount to IV. The market for sure made that precisely wrong. Market value will eventually catch up with IV.
« Last Edit: January 28, 2018, 09:59:43 AM by longinvestor »

educatedidiot

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Re: Sequoia Fund Investor Day Transcript
« Reply #78 on: February 15, 2018, 06:07:44 AM »
Sequoia's Q4 13-F is out.  You can see some of the details of their transformation with increases in a number of internet-based businesses (AMZN, GOOGL, W, JD) and decreases in a number of their longer-held positions:
http://www.rocketfinancial.com/Holdings.aspx?id=370&fC=1